Moody's morning surprise brings cheers in India

The government may be rejoicing credit ratings agency Moody's upgrade on India's sovereign bond rating from Baa3 to Baa2 with a stable outlook, but critics feel that it is blowing the matter out of proportion.

President of industry chamber Ficci Pankaj Patel said the development underlines the fact that India is moving in the right direction.

United States credit rating agency Moody's on Friday upgraded India's sovereign rating to Baa2 from its lowest investment grade of Baa3 after 13 years.

But at a press conference held after the news of the Moody's upgrade, Jailtley said, "We intend to maintain the fiscal glide path". The decision by Moody's is a shot in the arm for Prime Minister Narendra Modi's government and the reforms it has pushed through, and comes just weeks after the World Bank moved India up 30 places in its annual ease of doing business rankings. "We welcome it and believe that it is a belated recognition of all the positive steps taken in India in the last few years which has contributed to the strengthening of the Indian economy", he told reporters.

This period has, moreover, seen the country grow from a barely $ 620 billion to a $ 2.3 trillion economy, with its official foreign exchange reserves, too, soaring from some $ 110 billion to nearly $ 400 billion.

Chief Economic Advisor Arvind Subramanian, whose Economic Survey had a piece on the "poor standards" of the rating agencies, echoed these sentiments, noting that the upgrade was long overdue.

Congress leader Kapil Sibal on Saturday said the upgradation of India's rating by U.S. credit rating agency Moody's was not in sync with the "mood of the people". Rupee, bonds and stocks rallied after the ratings upgrade. "The Reserve Bank should cut rates on December 6 to signal a lending rate cut before the busy season with inflation well under control", Sen Gupta said.

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This is India's first rating upgrade since 2004, when it was upgraded to Baa3 from Ba1.

"Longer term, India's growth potential is significantly higher than most other Baa-rated sovereigns", the agency said. Sensex raced up 414 points at one point but stabilised later to close 235.98 points, or 71 bps higher at 33,342.80.

The 50-share Nifty raced past the key 10,300-mark during the day, only to come off the high and end at 10,283.60, a gain of 68.85 points, or 0.67 per cent.

Even if recent economic reforms have seen near-term negative growth impacts, there have been some benefits. Last year, India lobbied hard with Moody's for an upgrade, but failed.

"The intent of Modi government is to continue with its reform agenda", he said.

The government is mid-way through a wide-ranging programme of economic and institutional reforms, the global ratings agency said in a statement on Friday, mentioning GST, improvements to the monetary policy framework, and measures to address bad loans of banks.